GLOBAL SOURCING By: Ashok Rawat - 13 Burhanuddin H D - 15 Chetan Gandhi - 16
GLOBAL SOURCINGThe procurement of products or services fromindependent suppliers or company owned subsidiarieslocated abroad for consumption in home country or thirdcountry.
MAKE OR BUY DECISION Decide between internalization/externalization What is your core competency? Also decide buy local-or-global Adopt global sourcing when: • Low cost • Improve quality • Increase reliability of supply • Establish presence in foreign market • New technology • International PLC • Reacting to sourcing patterns of competitors
SOURCING CONFIGURATION Vertical integration • Focus on internalization of value chain • Ownership of suppliers • Reduction in transaction costs Industrial clusters outsourcing • Buyers and suppliers locate in close proximity • Reduction of transportation and transaction costs Japanese Keiretsus • Buyers and suppliers located in close proximity • Buyers have an ownership interest in suppliers e.g. Toyota
DRIVERS OF GLOBAL SOURCING Technological advances Declining communication and transportation costs Entrepreneurship and rapid economic transformation.
GLOBAL SOURCINGStrategic Benefits Challenges/Risk Vulnerability to exchange rate fluctuations Partner selection, qualification, andCost Efficiency monitoring costsFaster corporate growth. Increased complexity of managing aAccess to qualified personnel abroad. worldwide network of production locations and partnersImproved productivity and service. Complexity of managing global supplyBusiness process redesign. chainIncreased speed to market. Limited influence over the manufacturingAccess to new markets. processes of the supplierTechnological flexibility. Potential vulnerability to opportunisticImproved agility by shedding behavior or actions in bad faith byunnecessary overhead. suppliers Constrained ability to safeguard intellectual assets Local Manufacturing
RISK OF GLOBAL SOURCING Less-than-expected cost savings Conflicts and misunderstandings arise because of differences Environmental factors Exchange rate fluctuations, labor strikes, adverse macro- economic events, high tariffs and other trade barriers, and high energy and transportation costs. Weak legal environment Many popular locations have weak laws and enforcement regarding intellectual property, which can lead to erosion of key strategic assets.
RISK OF GLOBAL SOURCINGOver-reliance on suppliers Unreliable suppliers may put earlier work aside when they gain a more important client.Erosion of morale and commitment among home-countryemployees Global sourcing can create a situation in which employees are caught in the middle between their employer and their employer’s clients.
RISK OF GLOBAL SOURCINGRisk of creating competitors As firms share its intellectual property and business-process knowledge with foreign suppliersInadequate or low-skilled workers Employees may lack KSAs or high rapid turnover of skilled employees.
STRATEGIES FOR MINIMIZING RISK IN GLOBAL SOURCING Firms ought to go offshore for the right reasons Need to get employees on board Choose between a captive operation and a contract with outsidespecialists carefully Choose countries and suppliers carefully The focal firm needs to invest in supplier development andcollaboration
REFERENCES• “Global Sourcing of Services and Market Performance: An Empirical Investigation," Journal of International Marketing,6 (1998):10-31.• International Journal of Global Logistics & Supply Chain Management Vol. 1, No. 2, 1 November 2006, 90 – 97.• Globalization of Work :Outsourcing and Offshoring,Global Executive Forum,2005,6-7• The Real Cost of Offshoring,Michael Mandel,Business Week, June 18,2007• “Outsourcing: Time to Bring it back Home?” Economists, March 5,2005,63• “Outsourcing: Pros and Cons", Murray Weidenbaum,Executive Speeches 19(2004):31-35